What does the Australian Eagle team mean by quality?
In this video Sean Sequeira joins me to discuss how we define quality for the companies held in The Montgomery Fund portfolio. Sean identifies the importance of quality when investing and how Australian Eagle Asset Management determine the quality of a business.
Roger Montgomery: I’m Roger Montgomery from Montgomery Investment Management, and I’m with Sean Sequeira for the final time in this series where we’ve covered the investment philosophy and process of Sean, Alan, and the team. In this video, I ask Sean what he means by quality. It’s something we’ve talked a lot about here at Montgomery and it’s very important for investors in The Montgomery Fund. So, Sean, we’re both wedded to quality. We know what it means through experience for long term returns. When you talk about quality, tell me what you mean.
Sean Sequeira: When we talk about quality, what we want to do is determine the quality of the business, not necessarily the accounting metrics, as some others might do. A quality company from our perspective is operating in a growing market. It gives you a good tailwind, has a competitive advantage in their product, and the management have shown a history of taking advantage of those two key attributes. The next thing is that what we want to see they have a balance sheet and a capital structure that doesn’t take on too much risk, but can adequately finance their strategy. And, importantly, what we want to see is the management are minority shareholder centric when they consider their capital allocation decisions.
Roger Montgomery: So you’re looking for businesses that have great prospects, great management, a strong balance sheet to be able to fund it without diluting investors or taking on too much risk in terms of debt. And that definition of quality I know has produced the returns that you’ve generated over the last 17 years. So thanks for sharing that with us.
That’s all we have time for in this video. We look forward to talking with you again soon.